The Electric Reliability Council of Texas (ERCOT) forecasts electricity demand could reach a new winter record on Friday, 4 February 2022. The electric grid operator forecasts hourly electricity demand may reach more than 71,000 MW during the early morning hours. This will be the first major test of the electric grid since winter storm Uri left millions of customers without electricity for days nearly a year ago today.

Here are three key issues to focus on as the cold weather moves into Texas this week:

New peak demand forecast puts electric grid at more risk for emergency conditions

The electric grid operator quietly released the final winter Seasonal Assessment of Resource Adequacy (SARA) report on 19 November 2021. In the report, ERCOT anticipated there would be sufficient installed generating capacity to serve a 62,000 MW system-wide peak demand, assuming average generation outages and average renewable output during this winter season. The report also indicates the electric grid could operate under normal conditions even with high generation outages and low renewable output. However, the new peak demand forecast moves the electric grid closer to a state of emergency and rotating outages for a second year in a row.

Power prices may reach scarcity levels for the first time in 2022

The record-breaking electricity demand may push hourly wholesale electricity prices well above the $350/MWh year-to-date record and test the recently implemented scarcity pricing reforms. Unlike winter storm Uri, wholesale electricity prices will now be capped at $5,000/MWh after regulators lowered system-wide offer cap at the beginning of the year.

Another power outage could complicate the market reforms underway

After winter storm Uri left millions of customers without electricity for days, Governor Abbott signed 16 bills into law to reform the state's electric industry. The new laws cover a wide range of issues that arose after the near collapse of the electric grid last year and the PUCT has been focused on implementing the electric market reforms since last summer. Another power outage could complicate the recently announced two-phased blueprint and likely lead to more regulation of the electric industry. The governor and legislators will also find themselves in a difficult position from another power outage because Texas has a statewide and gubernatorial election in 2022 and the reliability of the power grid is centerstage.

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Michael Pickens, an Associate Director at IHS Markit, focuses on the ERCOT and Midcontinent power markets with the North American power markets analysis team.

Posted on 3 February 2022

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.